Suppose we wish to borrow 5000000 for 91 days at LIBOR begin

Suppose we wish to borrow $5,000,000 for 91 days at LIBOR beginning next March, and that the quoted Eurodollar futures price (based on a 360-day year) is 91.03. How much will be needed to repay the loan?

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Solution

Quoted price = 91.03 for 360 days

Interest rate for 360 days = (100 - 91.03) / 100

= 8.97%

Interest rate for 360 days is 8.97%.

Interest rate for 91 days = (9.85% / 360) × 91

= 2.26742%

Interest rate for 91 days is 2.26742%.

Amount Borrowed = $5,000,000

Amount Need to repaid = $5,000,000 × (1 + 2.26742%)

= $5,113,370.83

Total amount need to repaid is $5,113,370.83.

Option (A) is correct answer.